One top investment pro thinks emerging markets could be the trade of the decade

The Long-March II-F rocket carrying the Shenzhou VII manned spacecraft blasts off from the Jiuquan Satellite Launch Center, Gansu province September 25, 2008.
Reuters
In the past few years, investors have been fleeing from emerging market stocks as concerns over growth and stability have increased.

Stocks in these countries, however, appear primed for a huge comeback according to Christopher Brightman chief investment officer of Research Affiliates, a subadvisor to PIMCO.

"From the rear-view mirror, the bear market in emerging markets has been painful," he said in a post on PIMCO's blog.

"When we look out of the windshield, however, these very asset classes offer the highest potential returns available to today's opportunistic investor. So, the exodus from emerging markets is a wonderful opportunity - and quite possibly the trade of a decade - for the long-term investor."

"We are sympathetic to those alarmed by these events and recognize that this understandable fear creates today's bargain prices," said Brightman. "While markets are not efficient, neither are they irrational."

Brightman highlighted the current Shiller price-to-earnings ratio for these emerging markets, which adjust from inflation.

Brightman again (emphasis added):

As of January 31, 2016, emerging market equities are priced at a Shiller P/E multiple of 10x, ranked in the lowest 4th percentile since 1990. We find six times in the last 25 years when the emerging markets' Shiller P/E multiple dipped below 10x. How did these stocks perform after reaching these bargain-basement multiples? Five years later, emerging market equities delivered an impressive average cumulative return of 188%!